New Delhi: In a major relief for Air India, the Petroleum Ministry has decided to grant fuel on credit.

The Centre will ask oil companies to provide up to three months credit to the troubled airline for jet fuel instead of making daily payments. Currently Oil companies supply fuel to the airlines on cash payments basis.

The decision on providing fuel credit was taken by a Group of Ministers (GoM), headed by Finance Minister Pranab Mukherjee.

After the meeting, Civil Aviation Minister, Vayalar Ravi told reporters that it is broadly agreed by oil companies that instead of cash and carry, Air India will from now on make payments on the basis of this credit limit of two to three months.

In this regard, the Oil Ministry will soon pass directions to the oil companies.

Air India owes more than Rs 2,000 crore to oil companies in public sector. Considering the amount debt, oil companies had adopted cash-and-carry mode.

But due to poor financial condition airlines had problems arranging the cash.

Due to lack of fuel, from May 27, 2011 to June 2, 2011 period, 147 flights of Air India and Air India Express were cancelled. The two companies suffered a loss of Rs 10 crore.

Until the financial condition gets better, the Air India has requested for more time from all creditors to pay the outstanding amount.

The airlines is under the debt of Rs 21,200 as working capital loan, Rs 22,000 crore is long-term loan on fleet acquisition and Rs 4,600 is vendor dues. During the year 2010-11 the company's accumulated deficit has reached at Rs 20,320 crore.